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Tiffany (TIF)Stock (Jewelry Stores Industry, Luxury Industry, Retail Industry)
 Tiffany's sales grew from $1.9 billion in 2003 to $2.9 billion in 2007, fueled by the company's expansion from 141 store locations in 2003 to 192 stores in 2008. A big part of the company's strategy has been focusing on higher-end jewelry in its product mix - about one-third of Tiffany branded sales in 2007 were from gemstone jewelry with an average price of $3,400.[2]. 41% of Tiffany's net sales in 2007 came from international operations[3]. At the end of the first quarter of 2008, 111 of the company's 192 stores were located outside of North and South America[4]. This protects the American jeweler from downturns in regional economies, such as the sluggish conditions in the U.S. that began in late 2007. The company plans to open 18 new stores in the Asia-Pacific and Europe regions.[5] Due to the international nature of its business, Tiffany is largely affected by exchange rates, and fluctuations in foreign currencies against the U.S. dollar have major effects on Tiffany's sales and profits. For example, in 2007 and early 2008, a falling U.S. dollar spurred high foreign tourist spending at U.S. stores in cities such as New York, Las Vegas and San Francisco, and translated to larger increases in international sales once converted back to the dollar.
[edit] Business Overview
Tiffany & Co. is a U.S. based global jewelry retailer. The company has had tremendous growth in the five years from 2003 to 2007, adding $1 billion to sales over the period, from $1.9 billion in 2003 to $2.9 billion in 2007[7]. The company earned a gross margin of 55.5% on its sales in 2007, with an operating margin of 18.0%. Tiffany has become a well-diversified retailer with 50% of its sales from U.S. retail stores and 41% of sales from international retail locations in 2007[8]. Worldwide comparable store sales (on a constant exchange rate basis) increased 7% in both 2006 and 2007 and 3% in the first quarter of 2008[9][10].  Tiffany & Co. sells its own brand of jewelry (approximately 86% of sales in FY07) as well as third-party designer brands in company-owned and franchised stores throughout the globe. The company owns and operates 192 Tiffany stores across the world as of May 2008, including 16 IRIDESSE stores that specialize in pearl jewelry[12]. Tiffany's flagship store in New York City is a vital source of sales for the company, as this one location was responsible for 10% of sales in 2007[13]. Sales at this store, as well as other locations in major American cities, is heavily dependent on foreign tourist spending.  [edit] Trends and Forces[edit] International Diversification Protects Tiffany From Regional DownturnsInternational sales accounted for 41% of Tiffany's net sales in 2007[15]. Tiffany's largest international presence is in the Asia-Pacific region, including Japan - this region represented 28% of sales in FY07, while Europe contributed 8% of total sales[16]. However, over half (nearly 58%) of Tiffany's stores are located outside of the Americas, meaning that Tiffany's domestic stores sell more on a per-store basis than the international stores. A large part of this is the disproportionately large amount of sales from the New York City flagship store (nearly $300 million in 2007)[17]. With the downturn in the U.S. economy worsening in 2008 and the possibility of a recession looming, Tiffany has been faring well in the rough seas. In the first quarter of 2008, the company's net sales increased 12% (with approximately 4% attributed to exchange rate fluctuation against the dollar) as growth in international sales was augmented by the falling value of the U.S. dollar. On a constant exchange rate basis, comparable store sales in the Europe and Asia-Pacific regions grew 12% and 15%, respectively, while same store sales in the Americas region (including both North and South America) grew only 1%[18]. As spending slows in the U.S., Tiffany has continued to exhibit companywide growth due to its sizable international operations, which the company plans on further expanding in 2008 with 18 new international locations opening during the year[19]. [edit] Luxury Retailers Tend to Suffer Less in Economic SlumpsLuxury retailers such as Tiffany appeal to customers in the upper-income bracket whose absolute spending power is not significantly affected by macroeconomic downturns. While the wallets of members of the lower- and middle-classes are significantly pinched during economic downturns, Tiffany's core customers have wealth that allows them to purchase jewelry with average unit prices above $3,000, and these customers are not as affected by downward trends in U.S. economic cycles . As such, as the U.S. economy has struggled in the second half of 2007 and early in 2008, Tiffany's North American sales grew 1% on a same store basis in the first quarter of 2008 [20] while Signet, one of Tiffany's major competitors but a retailer of lower-priced jewelry, posted a 4.7% decline in same store sales in the U.S. for the same period[21]. [edit] Exchange Rates: Major Risks and Rewards with Fluctuations Against the DollarDue to its large international segment exchange rates play a major role in Tiffany's performance. As the company doesn't engage in any significant hedging activity against exchange rate risk, the final amount of its sales and profits are greatly exposed to fluctuations in the value of the U.S. dollar. When the dollar falls against foreign currencies, such as the Japanese yen, Tiffany's sales in this foreign country become more valuable when translated back into dollars. For example, in the first quarter of 2008 Tiffany gained 15% on Japanese sales due to appreciation of the yen against the dollar[22]. This is a major positive for Tiffany, as the dollar has been falling in value since late 2007 and a domestic recession would keep exchange rates in favor of companies with foreign sales. Exchange rates also directly play a part in domestic sales as they influence foreign tourist spending. When the dollar is weak, U.S. goods are relatively cheap for foreign customers and this leads to higher sales from foreign tourists in U.S. cities such as New York, San Francisco, Las Vegas and other tourist-popular cities. This is particularly important in the New York flagship store where a majority of sales are from foreign tourist purchases. [edit] Partnership with Swatch: Looking for Growth in WatchesIn December 2007 Tiffany & Co. announced a strategic alliance with Swiss watch maker The Swatch Group. The partnership created a Swatch-owned company that will design, produce, and distribute Tiffany-branded watches[23]. Tiffany & Co. will participate in the operation of the watch line and share profits from sales of the watches with The Swatch Group. The Tiffany watch line will be sold through Swatch's current distributors as well as in Tiffany stores throughout the globe. The watch line will help to diversify Tiffany's sales away from jewelry, protecting Tiffany from downturns in the jewelry industry and potential issues with diamond and other gem supplies, while creating a new outlet for sales growth. Sales for watches is not broken out, but a full launch and expansion of the watch line is planned for 2009. [edit] CompetitionJewelry-shoppers are less price sensitive than consumers of other goods, and cost is often not the major factor in a purchase decision. Important points of differentiation are quality, service and image. Thus, smaller specialized jewelers are able to compete on a store-to-store basis against larger companies such as Tiffany. As such, Tiffany's competition comes from a variety of sources, including other specialty jewelry retail chains, department stores with jewelry operations and small jewelry shops. Tiffany's largest direct competitors include Signet Group (SIG), Zale (ZLC), and Blue Nile (NILE). Signet Group (SIG) is the world's largest specialty jewelry retailer in terms of sales, with $3.6 billion of revenue in 2007; the company is based in the United Kingdom and operates 1,962 stores in the U.K. and the U.S., including the Kay Jewelers and Jared The Galleria of Jewelry chains in the United States. Zales specializes in diamond jewelry and operates mostly mall-based stores as well as mall kiosks only in North America. Blue Nile (NILE) is the largest online-only retailer of certified diamonds and fine jewelry. In addition to these specialty retailers Tiffany faces competition from upscale and exclusive retailers such as Bulgari and Cartier. Speciality Jewelry Retailers: Department Stores:
Note: Market share figures assume $64.7 billion U.S. jewelry retail market.[28]
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Categories: Retail | Luxury | Mature | Jewelry Stores |
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